Production Process Consultants, Inc. v. Wm. R. Hubbell Steel Corp.

• Decision Date: 26 March 1993
• Docket Number: No. 92-1827,92-1827
• Citation: 988 F.2d 794
• Parties: PRODUCTION PROCESS CONSULTANTS, INCORPORATED, an Indiana Corporation, Plaintiff-Appellant, v. WM. R. HUBBELL STEEL CORPORATION, an Illinois Corporation, and Capricorn II, an Illinois Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 794

988 F.2d 794

PRODUCTION PROCESS CONSULTANTS, INCORPORATED, an Indiana

Corporation, Plaintiff-Appellant, v. WM. R. HUBBELL STEEL CORPORATION, an Illinois Corporation, and Capricorn II, an Illinois Corporation,

Defendants-Appellees.

No. 92-1827.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 11, 1993.

Decided March 26, 1993.

Steven W. Handlon (argued), Handlon & Handlon, Portage, IN, for plaintiff-appellant.

Paul A. Leonard, Jr. (argued), Goodman, Ball & Vanbokkelen, Highland, IN, for defendants-appellees.

Before BAUER, Chief Judge, and POSNER and COFFEY, Circuit Judges.

COFFEY, Circuit Judge.

The plaintiff-appellant, Production Process Consultants ("PPC"), filed a diversity action against Hubbell Steel ("Hubbell") for quantum meruit and unjust enrichment. The case, upon agreement of the parties, was assigned to a U.S. magistrate judge pursuant to 28 U.S.C. § 636. The magistrate denied the plaintiff any relief because the defendant, Hubbell, did not receive a benefit from PPC's services. PPC appeals. We affirm.

I. BACKGROUND

Hubbell Steel specializes in the sale and distribution of galvanized steel. Galvanizing is a process in which steel coils are coated with zinc to prevent corrosion of the steel. In 1986, Hubbell purchased a used galvanizing line (the "line") for $1,500 from U.S. Steel. During the next three years, Hubbell invested another $500,000 to upgrade the line. It was Hubbell's intention to convert the line from an experimental project into an operating production line which would produce prime quality galvanized steel coils through a process that was less than state-of-the-art. Based on the experience gained from operating the experimental line, Hubbell planned to build its own state-of-the-art galvanizing line. Hubbell eventually found that the line was less than a money making venture and ceased production late in 1989. Following the shutdown, Hubbell commenced negotiations with PPC for additional improvements to the line with an option for PPC to enter a lease-purchase program for the line. Hubbell and PPC never entered into a written agreement, but in December of 1989, PPC orally agreed to rebuild the line, provided that Hubbell would supply the capital and materials for the improvements. Additionally, PPC agreed to operate the line on a conversion price with PPC receiving eight cents for every pound of marketable galvanized steel.

Relying upon the oral agreement, PPC made substantial improvements to the line and Hubbell supplied in excess of $100,000 of working capital. PPC's efforts increased the line's production rate, but the steel product turned out to be of inferior quality with some twenty-five percent of it having to be rejected as scrap. The rejection rate, combined with the increase in the cost of zinc plus a decrease in the market price and demand for galvanized material, rendered the line economically unprofitable prompting Hubbell to terminate production in May of 1990. Since the shutdown, no one including PPC has made an offer for the line. Based on the record presented, combined with the lack of interested purchasers, the magistrate concluded that the line was of minimal value and further, PPC's efforts did not increase its fair market value.

PPC argues on appeal that the magistrate erred in dismissing their quantum meruit claim solely because Hubbell failed to receive any direct pecuniary gain. PPC asks us to vacate the judgment in favor of Hubbell and enter a judgment in favor of the plaintiff. Alternatively, PPC requests that we reverse with instructions to determine the reasonable value of PPC's services.

II. DISCUSSION

Both parties agree and the magistrate found that Hubbell and PPC never entered into a written contract. Thus, the case hinges on whether the plaintiff is entitled to recover under the theory of quantum meruit. A claim based on quantum meruit is cognizable under Illinois law. See, e.g., Bank of Alton v. Bowman, 198 Ill.App.3d 329, 144 Ill.Dec. 478, 479, 555 N.E.2d 997, 998 (1990). Illinois courts have explained that

"[t]he term 'quantum meruit ' literally means 'as much as he deserves.' ... It is a term that describes a recovery which is based on the reasonable value of services that have been performed.... The theory of recovery in quantum meruit is that the defendant has received a benefit which would be unjust for him to retain without paying for it.... Therefore, in order to recover in quantum meruit, it is essential that the services performed by the plaintiff must be of some measurable benefit to the defendant."

Van C. Argiris & Co. v. FMC Corp., 144 Ill.App.3d 750, 98 Ill.Dec. 601, 603-04, 494 N.E.2d 723, 725-26 (1986) (citations omitted). The plaintiff states that the magistrate's undisputed findings of fact reveal that the plaintiff made substantial changes to the line having value in excess of $100,000. For some reason, the plaintiff ignores the fact that those changes resulted in no benefit to the defendant. At oral argument, this was likened to the scenario of an attorney taking a case on a contingent fee basis. The attorney may invest a great number of hours and overhead on behalf of his client's case but if the client loses, the attorney receives nothing but valuable experience because the client received no benefit.

The plaintiff, in support of his quantum meruit theory of recovery makes but one plausible argument. He argues that based on the Restatement of Restitution, he is entitled to recover because he performed the service of improving the galvanizing line at the request of the defendant. The Restatement provides:

§ 1. Unjust Enrichment.

A person who has been unjustly enriched at the expense of another is required to make restitution to the other.

Comment:

a. a person is enriched if he has received a benefit (see Comment b)....

b. ... A person confers a benefit upon another if he ... performs services beneficial to or at the request of the other....

Restatement of Restitution, § 1 (1937) (emphasis added). One court has interpreted Illinois law and applied § 1, Comment b to a quantum meruit claim. In Bond v. Oak Mfg. Co., 293 F.2d 752, 753 (3rd Cir.1961), the Third Circuit Court of Appeals determined that although an oral agreement between the plaintiff and defendant was unenforceable (because of...